Why Microsoft can’t — and shouldn’t — give up on Bing

In two years, Microsoft‘s Bing has doubled its share of the US search market, from 7.2 percent to 14.4 percent. If you add Yahoo’s Bing-powered portal, it’s 27 percent. So why are loud voices clamouring for Microsoft to give up on search?

Bing’s Online Services Division doesn’t make money. Shortly after Microsoft released its quarterly earnings results, ZDNet‘s Larry Dignan called the OSD an“online sinkhole,” noting that the division last turned a profit in 2006 and had lost $8.5 billion over nine years. Last year, it lost a record $2.56 billion.

Reuters columnist Robert Cyran’s “Microsoft ought to kick off search for Bing buyer” turned up the heat, particularly when it was syndicated the following week in the New York Times under the headline “Bing Becomes A Costly Distraction for Microsoft”. Cyran’s argument is sophisticated: it recognises the value that Microsoft has built up in Bing (and corresponding value to a buyer like Facebook or Apple). Still, Cyran thinks Microsoft’s continued investment in an unprofitable division doesn’t serve the company’s shareholders. Facebook’s investors — a group that includes Microsoft — would presumably be better suited for the long play that Bing represents than Microsoft’s quasi-blue-chip, profit-maximising, dividend-minded shareholders.

It’s hard to see another big tech company paying full value. Daring Fireball‘s John Gruber joked that Microsoft could make money just by charging “pay-per-view admission to listen live to the phone call as Steve Ballmer calls Steve Jobsand pitches him on Apple buying Bing.”

TechCrunch‘s MG Siegler took the proposition more seriously, writing on his personal blog that “Bing needs its Halo” — the hit game that put Microsoft’s Xbox on the map. “Microsoft spends a shit ton of money on Bing — mostly on marketing it,” Siegler writes. “But I don’t know a person who actually uses it. That includes people who work at Microsoft.”

Finally, Mary Jo Foley herself, the dean of Microsoft reporters, weighed in with the authoritative “Why Microsoft Won’t Dump Bing.” Yes, the division is losing money, and some of its marketing schemes don’t make much sense, Foley admits. Nevertheless, Bing has become fully integrated into every Microsoft platform, from Windows Phone 7 to streaming video and live TV on the Xbox, and likely even Windows 8 itself.

Microsoft couldn’t untangle itself from Bing if it wanted to. It’s not just sunk cost, but sunk strategy. But it’s a strategy that still may pay off.